Correlation Between Ares Commercial and Starwood Property

Can any of the company-specific risk be diversified away by investing in both Ares Commercial and Starwood Property at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ares Commercial and Starwood Property into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ares Commercial Real and Starwood Property Trust, you can compare the effects of market volatilities on Ares Commercial and Starwood Property and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ares Commercial with a short position of Starwood Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Commercial and Starwood Property.

Diversification Opportunities for Ares Commercial and Starwood Property

0.29

Correlation Coefficient

Ares Commercial  Starwood Property

Modest diversification

The 3 months correlation between Ares and Starwood is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and Starwood Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starwood Property Trust and Ares Commercial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ares Commercial Real are associated (or correlated) with Starwood Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starwood Property Trust has no effect on the direction of Ares Commercial i.e., Ares Commercial and Starwood Property go up and down completely randomly.

Pair Corralation between Ares Commercial and Starwood Property

Given the investment horizon of 90 days Ares Commercial Real is expected to generate 2.25 times more return on investment than Starwood Property. However, Ares Commercial is 2.25 times more volatile than Starwood Property Trust. It trades about 0.04 of its potential returns per unit of risk. Starwood Property Trust is currently generating about 0.05 per unit of risk. If you would invest  672.00  in Ares Commercial Real on September 5, 2024 and sell it today you would earn a total of  31.00  from holding Ares Commercial Real or generate 4.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ares Commercial Real  vs.  Starwood Property Trust

Ares Commercial Real

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Commercial Real are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Ares Commercial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Starwood Property Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Starwood Property Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Starwood Property is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ares Commercial and Starwood Property

The main advantage of trading using opposite Ares Commercial and Starwood Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ares Commercial position performs unexpectedly, Starwood Property can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Starwood Property will offset losses from the drop in Starwood Property's long position.

The idea behind Ares Commercial Real and Starwood Property Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.